Ratings Agencies Play Chicken…Against the US Economy
- Joshua M Brown
- July 28th, 2010
You can file this one under D for Despicable.
Apparently, Moodys, Fitch and S&P aren't quite satisfied with having batted cleanup for the 2002-2007 Economic Wrecking Crew All-Stars. In a move straight out of a student sit-in protest, the three ratings agency stooges will now be wreaking havoc in the still-fragile $1.4 trillion asset-backed securities market by refusing to do their jobs.
This went on during my recent absence from blogging, but WSJ (via Coyote Blog) has the scoop:
Ford Motor Co.’s financing arm pulled plans to issue new debt, the first casualty of a bond market thrown into turmoil by the financial overhaul signed into law Wednesday.
Market participants said the auto maker pulled a recent deal, backed by packages of auto loans, because it was unable to use credit ratings in its offering documents, a legal requirement for such sales. The company declined to comment.
The nation’s dominant ratings firms have in recent days refused to allow their ratings to be used in bond registration statements. The firms, including Moody’s Investors Service, Standard & Poor’s and Fitch Ratings, fear they will be exposed to new liability created by the Dodd-Frank law.
Let me put this in schoolyard terms: The ratings agencies are playing chicken against the US economy. The message is to insulate them from responsibility or else they're taking their marbles and going home. And then you'll be sorry!
Isn't that nice? Regulation and the professional cowardice of hapless analysts working together to crush whatever's left of American Capitalism.
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.